Understanding insurance requirements from the Ohio Revised Code (ORC) is crucial when leading a condominium or homeowners association (HOA) in Ohio. Two important sections of the ORC, Chapter 5311 and 5312, lay out specific guidelines for associations including the types of insurance they must have. In this post, we’ll break down these requirements and help board members navigate the essential coverage they need to protect their community.
Ohio Revised Code Section 5311: Condominiums
Ohio Revised Code (ORC) Section 5311 regulates condominium property in the State of Ohio. It provides a legal framework for the establishment, management, and regulation of condominiums, including the rights and responsibilities of owners, developers, and associations. Section 5311.16 is a specific portion of that law that requires condominium associations to carry several types of insurance.
Required Insurance for Ohio Condominiums
- Liability Insurance: Liability coverage is essential for protecting the association against claims of bodily injury or property damage occurring within the common areas. For instance, if a resident or visitor is injured while using a community pool or walking in a shared park, liability insurance ensures the association is protected against legal claims. Under Ohio law, the association must have liability coverage for all unit owners, their tenants, and all persons lawfully in possession or control of any part of the condominium property. This coverage should protect against personal injury or property damage arising from or relating to the common elements, in an amount deemed sufficient by the association.
- Fire and Extended Coverage Insurance: The association must provide fire and extended coverage insurance for all buildings and structures of the condominium property. The coverage amount must be no less than ninety percent (90%) of the replacement cost of the buildings and structures, though some governing documents require higher coverage amounts. This insurance should cover a variety of risks including fire, vandalism, and weather-related events such as hail or windstorms.
- Fidelity, Crime, or Dishonesty Insurance: This insurance is a type of coverage that protects the association from financial losses caused by fraudulent or dishonest acts. Ohio law requires blanket coverage for any individual who controls or disburses association funds, including the management company’s principals and employees as well as the president, secretary, treasurer, other board members, or employees of the owners association. The coverage must:
- Insure for the maximum amount of funds in custody of the association or its agent at any time, plus three months of operating expenses.
- Protect the association against theft, embezzlement, misappropriation, or any other unauthorized taking or loss of funds.
- Name the association as the insured party and be for its sole benefit.
- Include the manager and managing agent of the association’s funds within the definition of “employee” or provide for their inclusion through endorsement.
- Include a provision requiring the insurer to notify the association’s president or manager in writing at least ten days prior to any policy cancellation or substantial modification.
Ohio Revised Section Code 5312: Homeowners Associations (HOAs)
Ohio Revised Code (ORC) Section 5312 governs planned community developments in Ohio. This section, often referred to as the Ohio Planned Community Law, provides a legal framework for the creation, governance, and management of planned communities, which are distinct from condominiums covered under ORC 5311. Planned communities include most Homeowner Associations (HOA’s) as well as other types of cooperatives where ORC 5312 applies to planned communities, where owners typically own individual lots and homes with common areas managed by the association. Section 5312.06 is a specific portion of that law that requires these associations to carry several types of insurance coverages.
Required Insurance for Ohio Planned Communities and HOA’s
- Property Insurance: Coverage on the common elements of the community, ensuring the association can repair, rebuild, or replace damaged property without placing an undue financial burden on the association or its members. Common property coverage includes clubhouses, pools, playgrounds, fences, landscaping, and similar amenities.
- Liability Insurance: Essential coverage pertaining to the common elements of the community, protecting the association against claims of bodily injury or property damage occurring within the common areas. For instance, if a resident or visitor is injured while using a community pool or walking in a shared park, liability insurance ensures the association is protected against legal claims.
- Directors and Officers Liability Insurance: Directors and Officers (D&O) Liability Insurance is a specialized policy that provides liability protection for the board members and officers of an association. It safeguards these individuals from personal financial losses if they are sued for decisions or actions they take in their official capacity.
- Fidelity, Crime, or Dishonesty Insurance: This insurance is a type of coverage that protects the association from financial losses caused by fraudulent or dishonest acts. Ohio law requires blanket coverage for any individual who controls or disburses association funds, including the management company’s principals and employees as well as the president, secretary, treasurer, other board members, or employees of the owners association. The coverage must:
- Insure for the maximum amount of funds in custody of the association or its agent at any time, plus three months of operating expenses.
- Protect the association against theft, embezzlement, misappropriation, or any other unauthorized taking or loss of funds.
- Name the association as the insured party and be for its sole benefit.
- Include the manager and managing agent of the association’s funds within the definition of “employee” or provide for their inclusion through endorsement.
- Include a provision requiring the insurer to notify the association’s president or manager in writing at least ten days prior to any policy cancellation or substantial modification.
Optional Coverages That Can Benefit Associations
In addition to the required coverages, there are several optional coverages that associations should consider based on their unique needs.
Directors and Officers (D&O) Insurance: While not required by the ORC for condominiums, D&O insurance protects condominium association board members and officers from personal liability arising from actions they take while managing the community. D&O coverage can help defend board members against legal costs, settlements, and damages associated with their actions or decisions in managing the community. D&O insurance is required by ORC 5312 for planned communities such as homeowner associations (HOA’s). Condominium associations should also strongly consider this coverage.
Umbrella Insurance: An umbrella policy provides additional liability coverage above and beyond the limits of the association’s primary policies. This can be useful if a claim exceeds the liability limits of the general liability or D&O insurance.
Flood Insurance: It’s a good practice for associations in Ohio to consider flood insurance if the community is in a high-risk area. These policies cover damage caused by flooding-based natural disasters, which may not be covered under typical property insurance policies.
Workers’ Compensation Insurance: Though uncommon, if the association employs workers to maintain common areas, such as landscapers or maintenance personnel, workers’ compensation insurance is advisable and most likely required. This insurance covers medical expenses and wages for employees who are injured while working.
Important Considerations for Board Members
There are a few key considerations that board members should keep in mind when it comes to insurance coverage.
Coverage Limits: Board members should work with an insurance agent to ensure that the coverage limits meet the community’s needs and are compliant with the requirements of Ohio law. Underinsuring or overinsuring can have negative consequences.
Review Policies Regularly: Insurance needs change over time, especially with significant developments or changes in the community. Boards should review their insurance coverage annually and after major events or property improvements.
Compliance: Ensure that the insurance policies meet the minimum requirements outlined by the Ohio Revised Code and the community’s governing documents.
Documentation: The association should keep all insurance policies, claims history, and other related documents organized and easily accessible. These records are essential for claims and future policy renewals.
Deductibles: Be aware of any deductibles associated with insurance policies. In the event of a claim, the association will need to cover the deductible before the insurance company pays out.
Conclusion
Navigating the insurance requirements for condominiums and homeowners associations in Ohio can be complex, but ensuring your association has the proper coverage is essential for protecting your community and its financial health. From understanding the mandates outlined in Ohio Revised Code Sections 5311 and 5312 to exploring optional policies like umbrella or flood insurance, staying informed about your association’s insurance obligations is key to effective governance.
If you have questions or need guidance about your association’s insurance coverages, Eclipse Community Management is here to help. Our experienced team is dedicated to supporting board members in making informed decisions that align with Ohio law and their community’s unique needs. Don’t hesitate to reach out to us for expert advice and personalized solutions for your association. Together, we can ensure your community is well-prepared and protected.
